Apple shares have been on a tear. Over the last year alone, the stock is now up 58%. This might come as a surprise to some, as iPhone unit sales have been negative in four of the last five quarters.
A big reason for the recent stock outperformance is due to increased expectations around the next iPhone, the iPhone 8. Many analysts and investors are predicting a supercycle - growth in both unit demand and pricing, which would drive significant growth in both sales and earnings.
The reasons for their optimism are numerous.
- There are a large number of users who bought an iPhone 6 almost three years ago, but have yet to upgrade their phones. Many analysts believe that these bulge of users will need to replace their phones and could drive sales among existing users.
- The next iPhone is widely speculated to have an OLED display - a feature that makes the screen brighter and the contrast sharper. This feature is widely available in most Android phones and is expected to be a significant upgrade to current iPhone screens. The technology could drive a higher mix of high-end iPhone sales.
- Apple has yet to see any significant signs of price elasticity among consumer demand. In other words, investors believe the company can continue to raise prices without harming sales given the strong brand and value proposition of the iPhone.
3 Important iPhone Metrics
Visible Alpha’s detailed consensus data shows where analyst expectations currently are for the three important metrics for the iPhone: unit growth, Average Selling Price (ASP), and Apple’s overall gross margin.
Consensus unit growth estimates are for growth over the next three years, with 12% growth in 2018 (when analysts expect the majority of the iPhone 8 sales to occur).
On Average Selling Price, analysts are modeling growth in the low- to mid-single digits up to 2018, and a slight decline in 2019.
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Finally, on gross margin, analysts are expecting gross margin to decline in all three years, but at a lesser rate than in 2016. Additionally, gross margin is expected to be essentially flat in 2018.
Taken collectively, consensus estimates demonstrate that analysts have become more bullish over time due to the growing expectation for a supercycle in the next iPhone iteration. However, with consensus expectations now baking in growth in units and ASP over the next two years, and an essentially flat gross margin change in 2018, the bar is now much higher for continued share outperformance.